Managing your farm in a volatile market
The market volatility faced by farms has been well documented across the Demand Economics Farm Briefings and many other publications over the past few months. A brief look at some key year on year prices tells the story:
London Wheat prices (source: Cefetra Market Data) have risen almost 60% over the past year to £310/t on April 26 2022 with the majority of that increase taking place since the end of February this year
Fertiliser AN UK produced (source Farmers Weekly) has risen almost 200% over the past year to £839/t in March 2022 compared to £283/t in March 2021
Source: Cefetra Market Data (click on graph)
There are a number of factors contributing to and compounding the problems:
Covid - Emergence from Covid lockdown in the UK in the second quarter of 2021 created a demand spike (witness the 5.6% year on year growth rate in Q2 2021 versus -1.2% in the prior quarter (Source ONS). This in turn put huge pressure on supply chains causing extended lead times to farms for key inputs and starting the upward pressure on inflation
Ukraine War – it is no coincidence that the vast majority of the grain price increase has been since the beginning of the invasion of Ukraine, given the importance to the world market of Ukraine grain.
China Covid lockdown – with around 400million Chinese citizens currently required to stay at home the effect on existing commodity supplies (both inputs and outputs) together with logistical bottlenecks will significantly compound an already stressed market environment.
Source: ONS (click on graph)
So what can farms do to manage?
Clearly there is absolutely nothing that an individual farm can do to change any of these external factors but there are a number of sensible steps that farms can and are taking:
Short term – optimise use of your current commitments
Optimise inputs – there are many suppliers, such as Bayer offering innovative resistant seed varieties or BFS with slow release more efficient fertiliser solutions, who are providing advice on how to ensure you are maximizing the efficiency of your input use
Plan your output sales – seek advice from the experts such as Cefetra on how to maximise your revenue from the timing of your key crop sales
Medium term – look again at your crop options
When starting to plan for next season, don’t necessarily just follow what you have always done – it is worth doing the maths on what crop rotation options exist and what the margin ranges will be. One of my farm clients switched some area to Rye this season specifically because the input prices were starting to go up around a year ago – the decision has hugely paid off given the recent fertilizer price rises. There is no real prospect of input costs reducing any time soon so it makes sense to look at all options that reduce the exposure to input costs
Long term – mitigate risk
The government push towards Net Zero emissions and the alignment of UK Agriculture Policy towards that aim with the Countryside Stewardship Scheme and various new ELMS initiatives present government funded options for farmers. Demand Economics now has a number of farm clients who acquired Countryside Stewardship Scheme agreements with DEFRA resulting in guaranteed income streams over the next five years. You can find out more HERE.
As with all sectors, in a volatile market it is all about optimizing your position with whatever flexibility you have in the short term and looking to mitigate risk as much as possible in the medium to long term.
For more information, please contact Adam Donaldson at Demand Economics on 07907 581094, or firstname.lastname@example.org